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Quantifying the Impact of Financial Development on Economic Development

Jeremy Greenwood, Juan Sanchez and Cheng Wang

No 572, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

Abstract: How important is financial development for economic development? A costly state veriÂ…cation model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as the intermediation spreads and the firm-size distributions for 1974 and 2004. It is then used to study the international data using cross-country interest-rate spreads and per-capita GDPs. The analysis suggests a country like Uganda could increase its output by 116 percent if it could adopt the worldÂ’s best practice in the financial sector. Still, this amounts to only 29 percent of the gap between UgandaÂ’s potential and actual output.

Keywords: costly state verification; economic development; financial intermediation; firm-size distribution; interest-rate spreads; cross-country output differences; cross-country differences in financial sector productivity; cross-country TFP differences (search for similar items in EconPapers)
JEL-codes: E13 O11 O16 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2012-03
New Economics Papers: this item is included in nep-dev, nep-eff, nep-ifn and nep-mac
Note: Review of Economic Dynamics, forthcoming, special issue on “Misallocation and Productivity,” edited by Diego Restuccia and Richard Rogerson.
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Related works:
Journal Article: Quantifying the Impact of Financial Development on Economic Development (2013) Downloads
Working Paper: Quantifying the Impact of Financial Development on Economic Development (2011) Downloads
Working Paper: Quantifying the Impact of Financial Development on Economic Development (2010) Downloads
Working Paper: Quantifying the impact of financial development on economic development (2010) Downloads
Working Paper: Quantifying the impact of financial development on economic development (2010) Downloads
Working Paper: Quantifying the Impact of Financial Development on Economic Development (2010) Downloads
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